Speech of Andros Kyprianou, G.S. of the C.C. AKEL, at the Meeting with foreign Ambassadors
5th February 2014, Nicosia
On behalf of the C.C. of AKEL I welcome and warmly thank you all for accepting our invitation and to be here with us today. We have established these meetings as a custom because we consider that the briefing and exchange of views between us on important issues affecting Cyprus are of great importance, particularly at this precise moment when important issues are at a crucial juncture.
Cyprus doesn’t now have to address only the challenge of the solution of the Cyprus problem. The tackling of the consequences of the global economic crisis and the management of our natural wealth are also issues of crucial importance. There is no doubt that the outcome of either of these issues will determine how Cyprus will be like in the years ahead.
For AKEL it is a major priority that Cyprus’ future should be free and reunified. I would like to assure you that we remain focused on the goal for a solution of the Cyprus problem because we consider the partitionist status quo unacceptable and dangerous for the survival of the Greek Cypriots and Turkish Cypriots in their common homeland. Cyprus’ dire economic situation makes the need for a solution even more imperative. A just, workable and viable solution will give a significant boost to the economy which is continuously sinking without any prospects for a real recovery in the foreseeable future due to the Troika’s recipes.
The discovery of hydrocarbons in the Exclusive Economic Zone of the Republic of Cyprus represents a new serious incentive for a solution for both communities. On the one hand, only with the solution of the Cyprus problem will the Turkish Cypriots be able to also enjoy the benefits from the discovery of hydrocarbons. On the other hand, the Greek Cypriots need a stable and secure environment that will enable the unhindered utilization of this invaluable commodity.
Without ignoring the fact that there is an internal aspect too which concerns the relations of the two communities, the Cyprus problem is a problem of invasion and occupation. Its solution must be based on the principles of International Law, as well as the principles upon which the European Union is founded. The solution we are seeking must safeguard the full demilitarization and withdrawal of the settlers; a bi-zonal, bi-communal federal solution, with the single sovereignty, single international personality and single citizenship of the united Republic of Cyprus ensured. It must also safeguard the human rights and basic freedoms of all Cypriots, including the right of the refugees to return to their homes and properties.
The main reason why a solution has not been achieved all these years was the intransigence of the Turkish side. It is true that in 2004 we held separate referenda for a comprehensive solution. The vast majority of the Greek Cypriots however rejected the proposed solution, given that they considered this was not the result of free talks, but the outcome of one-sided arbitration that did not satisfy their reasonable concerns. A four year barren period followed.
When Demetris Christofias was elected to the Presidency of the Republic in 2008, the efforts for a solution were immediately resurrected. After Working Groups and Technical Committees were set up that prepared the ground, the basis of the talks was reconfirmed with the issuing of two joint communiqués. In the period Mr. Talat was in the leadership of the Turkish Cypriot community, despite the difficulties that did not permit all the progress we would have liked, important convergences were achieved on three chapters: on Governance and Power Sharing (the biggest and most complex chapter), the Economy and the European Union.
Among the significant convergences that had been agreed then was also the convergence on the issue of sovereignty. In the 1st July joint communiqué it was agreed that there will be a single sovereignty. Subsequently, on 10th January 2010 it was agreed that the sovereignty will be indivisible and emanate equally from the Greek Cypriots and Turkish Cypriots. I do not refer to this by accident since it has a direct relation to the difficulties encountered today with regards the issuing of a joint communiqué.
The position of AKEL is quite clear: We want a correct solution of the Cyprus problem as soon as possible. We have stated from the outset, and we fully mean it, that if President Anastasiades follows a policy that leads to a solution based on principles, the content of which I have outlined previously, we will not hesitate to back him. At the same time, we stressed that the President should continue the negotiating procedure from where we had left off, that is to say that he should insist on the Christofias-Talat joint communiqués and on the convergences that followed. We warned that in the contrary case Mr. Eroglou would bring back unacceptable positions to the table and we would be led to unnecessary and dangerous adventures.
We are particularly concerned about the fact that the attempt to draw up a joint communiqué is continuing for four months without a successful conclusion. We believe that it is feasible to reach a conclusion, as long as all sides respect the agreed basis for a single sovereignty, a single international personality and a single citizenship. The biggest obstacle, which is the question of sovereignty, can easily be overcome with the reconfirmation of the provision of the 10th January 2010 convergence for a single and indivisible sovereignty that will emanate equally from the Greek Cypriots and the Turkish Cypriots. We consider a step in the right direction the fact that this is precisely what President Anastasiades proposes in his last letter addressed to the UN Secretary-General.
From the moment that Mr. Eroglou declares that he wants to continue from where we had left off, something he stubbornly did not do during the talks held between the years 2010-2012, he has to accept the proposal. Only then will the path be paved for a conclusion on a joint communiqué, which in turn will lead to a resumption of the negotiating procedure. AKEL will do all it can so that this time we arrive at a successful outcome. In this difficult effort we shall cooperate with all those Turkish Cypriot compatriots of ours who have the same goal, even if we do not agree on everything.
Another message we are seeking with consistency to convey in all directions is that our country’s difficult situation cannot and must not constitute a means for exerting pressure for the imposition of a partitionist or bad solution to the Cyprus problem.
According to our analysis, the economic problems we are facing as Cyprus are unfortunately not momentary. Almost eleven months have passed since the signing of the Memorandum between the Republic of Cyprus and the Troika. The situation in Cyprus confirms the results the austerity policies and cuts have had on the countries implementing a fiscal adjustment programme.
The Cyprus economy is registering one of the worst performances in the field of development and growth. For 2013, the “optimistic scenario” forecasts a 5.5% recession, whilst a corresponding high percentage for 2014 is also anticipated. Public debt has already exceeded 110% of GDP, whilst the Troika’s assessments note that before 2016 there will not be primary surplus to reverse its exponential growth. Unemployment has risen to 17.6%, whilst among young people it has exceeded 40%. The non-performing loans in the banking sector have reached 19 billion Euros, whilst the banks have stopped providing loans to the real economy. The result is the deepening of the recession due to the absence of mechanisms to boost growth and development. These performances are not appropriate in a Eurozone economy. Although the targets of the Eurozone are not met in the attempt to achieve economic convergence, they are to a large extent the outcome of the decisions that have been taken by the leaders.
The D.Christofias government after an intense effort to wage a social dialogue and synthesis of views on a domestic and European level, arrived in November 2012 at an agreement in principle on the content of the Memorandum; a painful agreement for the people that could however have contributed to the efforts for the recovery of the economy since the banking sector would not have been downsized overnight. Unfortunately the result of the negotiation was not accepted by the European aside. The additional demands that existed on behalf of the creditors appear to have prompted the Eurozone Finance Ministers to wait for a change in the administration of the country in order to promote them.
The final agreement that was drawn up with the approval of Mr. Anastasiades instead of a balanced approach, included the unprecedented for banking standards haircut on the banking deposits in order to cover the capital needs of the banks. This was a landmark decision for the future of the Eurozone itself in relation to the way the banking institutions would now cover their capital deficits. Whilst the discussions underway at a European level are geared towards a maximum haircut of 10% on deposits, in the case of the Bank of Cyprus it reached 47.5%.
For Cyprus this decision meant the end of its banking sector in the form it had until then, due to the loss of trust in the banking system, but also as a result of the impact of the decision on the liquidity of the economy and on growth. The haircut led to a downsizing of the entire banking sector, changed its structure and capital base of almost all the banks and caused the continuous incapability of serving the credit obligations of enterprises and households. It is not an exaggeration to say that in one night the total of the portfolio of the banks started the process of restructuring. The impact on Cyprus’ economy could be compared with the loss of half of Germany’s car production or the loss of half of France’s production of agricultural products.
The agreement in March however did not restrict itself to the haircut on deposits. It committed Cyprus to privatize the profitable Semi-state public utility organizations, an outright political decision.
This was a decision based on dogmatism which characterizes the economic policy implemented by the Troika. These organizations not only do not burden public finances but represent a very significant source of drawing revenues annually. Their transfer to private capital will deteriorate the state revenues even more, indeed at a time when the Troika is demanding cuts so that the expenditures of the state budget are covered from its annual revenues.
However apart from the budgetary effect, the privatization of the Semi-state organizations will also have significant impacts on society itself. First of all, the structure of the Cyprus economy is such that in some of the cases of these organizations, their privatization would simply mean the transformation of a public into a private monopoly. Neither has it anything to do with opening up the market, nor about boosting competition. On the contrary, the strengthening of private capital’s monopoly situation will lead to the deterioration in the labour environment of the organizations, resulting in the surpluses and dismissals putting additional burdens on public finances. There will also be an impact on the prices and services that will be offered to the consumer, lowering the prosperity they enjoy today. Taking into account the social role these organisations have played so far and should play, it is becoming clear that such a decision will be a great loss to society.
I reiterate that the decision is principally political. It is founded on the philosophy of the Troika, but also of the current Government for the selling-off of public wealth so that the “state” is cut down and restricted. It is however truly worth questioning what such reasoning is based on, when the Treaty of the European Union itself permits the operation of public utility organizations under public management as long as obstacles are not raised to competition. What is the thinking behind the Troika’s demand to change the ownership status of a profitable enterprise which does not burden the budget and which brings within the space of a five year term bigger revenues than those that will be collected from the selling-off of the organizations in these conditions?
This kind of political approach also reflects the way in which the Government and the Troika seem to tackle the Memorandum’s implementation. There is no attempt whatsoever to assess the impacts these measures are having on society. There is no will to make reviews to the programme so that the already severe economic climate is improved and of course there is no legitimization in the decisions being taken.
Besides, one cannot overlook the conclusions made by the European Parliament on the lack of legitimacy in the Troika’s decisions and the lack of democratic control. Neither can one discount the criticism exercised about the philosophy of the policy pursued and especially with regards unemployment among young people; nor can one overlook the Government’s subordination to this philosophy.
Cyprus is probably the only country where the Troika’s demands are not provoking any reaction from the Government. The Government accepts congratulations for its willingness to implement the cuts and structural changes and almost extends its gratitude for the imposition of the unacceptable terms by the Troika. As soon as the Troika delegation has left Cyprus it pretends that it is reflecting about the increase in unemployment and the recession in the Cyprus economy.
However what are the real results of the Memorandum’s implementation on the Cyprus economy? The cuts in public expenditure and social benefits have reduced citizen’s living standards and significantly restricted consumer’s available income. Hence, the fall in domestic demand, the key fundamental pillar of the Cyprus economy, has affected negatively the labour market, skyrocketing unemployment to unprecedented heights. At the same time all those who do manage to keep their job are confronted with more harsh terms of unemployment, cuts in wages and benefits. A similar situation exists with regards pensions too. As a result, households and companies cannot meet their credit obligations and many properties are in danger of being confiscated. If the first residence is not safeguarded we are very concerned that we will be confronted with very extreme phenomena, phenomena of homeless and social destitution.
This is the reason why we unequivocally arrive at the conclusion that within the framework of the Memorandum and rampant austerity there cannot be any development, or a wide-ranging social policy. Not only because there is no political will on the part of the Government, but also because the course the Memorandum charts is a dead-end and catastrophic. Indeed, this conclusion is also adopted by IMF economists in their studies. In a study published by the IMF, Carmen Reinhart and Kenneth Rogoff conclude that the historical given situations demonstrate that for the developed countries to exit from the crisis austerity alone is not enough, but that other tools of economic policy are also required.
In Cyprus however such views are not taken into account. There is no attempt to find alternative ways of development. The blind commitment to the implementation of the Memorandum and the assurances about a speedy exit from the crisis has so far not explained how the future generations will be able to pay off the debt they have been loaded with, at the same time when the economy is unable to create surpluses. The Government has not replied how households will fulfill their private loan when their incomes are continuing to fall. It has not explained how the banking sector will find its liquidity again. Furthermore, it has not stated if in the end we will be able to exercise in the future economic policy based on our people’s interests and not the Troika’s dictates.
For AKEL, the devotion to the Memorandum is leading to the exacerbation of the problems and above all it does not solve the problem. It does not provide any prospect to society and the economy. This is why we cannot accept the privatization of the Semi-state organizations, but also the structural changes that are dismantling society’s social fabric even more. We believe that the Government must turn its attention to an alternative strategy that will aim to support the real economy; aim at the elaboration of a different model of economic activity which can respond to the new conditions that have evolved. Secondly, it should aim at the creation of a comprehensive scheme for the social protection of the vulnerable strata of the population and thirdly, to the development of a real strategy for the disengagement from the Memorandum; a strategy that will include the comprehensive utilization of the prospect of the Natural Gas based on a clear timetable for its utilization. The possibilities the use of the natural gas gives to the Cyprus economy are great. They can constitute the basis of a different model of economic development, but also a source of creating new jobs. The study carried out by the Agency for the Development of Human Resources in November 2012 points out that until 2019 the Energy sector can provide more than 5,000 jobs during the development of the Natural Gas infrastructures.
However regretfully we observe that the planning for the development of the energy sector is in danger as a result of the current Government’s actions. The key element in the Christofias government’s plan was the construction of a natural gas liquefaction terminal. With the creation of this ambitious project new political facts would have been formed in the Eastern Mediterranean. Such a development would have enabled the consolidation of co energies for the Natural Gas with Israel, Egypt, Lebanon and other countries of the region, enhancing the efforts for stabilization in the region. The decision for the construction of the terminal was taken in May 2012. At the same time a State Hydrocarbons Company was set up based on the Norwegian model. The competency of the economic management of the revenues from the exploitation of hydrocarbons was transferred to this company. Unfortunately, the current government cancelled indefensibly these plans.
As AKEL we had pointed out that it was wrong for the government to accept the incorporation within the Memorandum of a provision that made all the planning for the Natural Gas dependent on the Troika’s approval. More specifically, with the incorporation of a new provision that the investments for the Terminal must come under the fiscal frameworks and commitments in relation to the 2016 budget goals, the preconditions are created for the transfer of the ownership of the infrastructures from the state to the private sector. It is worth pointing out, and it is probably not accidental, that at the moment when the Government accepted the new provision in the Memorandum, the international advisors it had hired proposed the development and utilization of the Terminal to be carried out exclusively by private investors.
2019 was supposedly going to represent the landmark for the transfer of the Cypriot Natural Gas to the world markets. This goal is becoming more distant than ever, whilst it seems that already the date set for its utilization is shifted for 2025. To make the emergence of Cyprus as a regional transit station for petrol products possible, the state must undertake initiatives so that it can proceed immediately to the utilization of the planning for the energy sector at Vasiliko. The constant postponement of this scheme will turn both the neighboring countries towards alternative sources of channeling the Natural Gas and the Asian countries to other markets in order to meet their energy needs.
These were the main issues I wanted to deal with. I would like once again to thank you for your presence here today. I am at your disposal for any questions and exchange of views.
